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Keep Your eBay Biz Legal

Build your eBay business on a strong legal foundation to keep the bids coming.

Are you ready to start a business? "One of the main reasons small businesses fail is they don't seek legal and accounting help at the beginning," says Bellevue, Washington, enrolled tax agent and eBay Silver PowerSeller Patrick Snetsinger (eBay User ID: snetsnkeg). "How your company is structured will have long-term implications."

Many eBay businesses start by accident. Sellers begin by clearing out their houses, then they quickly find a niche and grow rapidly. Legal intentions to set up a legitimate business escape their mind as they ramp up a new business. But you shouldn't wait until you run into problems before setting up your business legally. Here are some initial legal considerations Snet-singer brings up. (Regulations vary by location.)

Business name: Creating a legal, creative and unique business name can be a challenge. Start with your county clerk for information about company names. Next, check with any online registration service to see if your URL is available. Then, go to the trademark office's website at www.uspto.gov/main/trademarks.htm to verify the legality of registering your business name.

Business license: Obtain business license information for your state at www.sbaonline.sba.gov/hotlist/license.html. Some states require auctioneers' licenses for eBay sellers and compliance with pawnbroker regulations for drop-off stores. Keep abreast of these legal regulations at www.ebaymainstreet.com/states.

Corporate structure: Consult your CPA or tax advisor immediately for help choosing a corporate structure-he or she can guide you to the choice that is the most beneficial, legally and financially.

Taxes: Do you have to pay taxes if you sell on eBay? Of course you do. Follow the advice of your CPA, tax advisor or lawyer. And be aware of the Streamlined Sales Tax Project. This controversial proposed program would put small businesses that ship products out of state at a huge disadvantage by requiring them to comply with as many as 49,000 different taxing jurisdictions, as well as thousands of filing procedures and laws. Go to www.ebaymainstreet.com/federal/?id=000015 to learn more.

Employees: As your business expands, you'll need to hire your first employee. Legally setting your business up for an employee is easier than you think. The first thing you need is an Employer Identification Number, or EIN, easily obtained by using Form SS-4. Even if you haven't hired your first employee, it's always good to be prepared, and an EIN can be used instead of your Social Security number for invoicing.

Some other legal considerations include checking the zoning laws and homeowner restrictions in your area to make sure you're in compliance with your neighborhood, and obtaining a wholesale/resale certificate to legally buy goods wholesale. Titanium PowerSeller Adam Hersh (eBay User ID: adamhersh) says, "The first thing you must realize when starting an eBay business is to treat it like a business from the start."

Janelle Elms, eBay University instructor and online business consultant, specializes in coaching individuals and companies to build successful eBay businesses. She is the bestselling co-author of Tax Loopholes for eBay Sellers.

Janelle Elms eBay University instructor and dean of Online Business for LA College International, is creator of the eBay Stores Video Series.

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This article was originally published in the March 2006 print edition of Entrepreneur with the headline: Law and Orders.

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